Knowledge Is Power: Teaching Kids About Financial Literacy, Ages 3 - 21

Disclaimer: The information contained on this post is for informational purposes only and is not intended as, and shall not be understood or construed as, legal advice, financial advice, or tax advice. Please consult with a professional if you have questions about your own unique situation.

A new year means new goals, but as mothers, our resolutions are so often not just for ourselves but to improve the lives of our families. As we've exited a year that has been less than financially predictable for so many, our thoughts have frequently turned to how we can better the future for our children. 

Research has shown that empowering our kids (and ourselves) with financial knowledge now creates endless benefits for enriching the paths they may choose in the future. While the thought of teaching children about money can often be stressful or intimidating, starting healthy money habits at any age will help your entire family to feel more empowered. We've started our journey by sitting down with Dr. Dewan Farhana, DO, a tech entrepreneur, thought leader on health care technology, and advocate of financial literacy, to discuss easy and fun ways to cultivate financial literacy at every age. Here's what she said:

85% of the brain is developed by five years old. This early development sets the foundation for all future learning, and while most children have a natural curiosity to learn, one topic is often not taught in schools or openly discussed in our homes: financial literacy. Our financial knowledge plays an important role in deciding where we want to allocate our time, energy, and funds. Thereby affecting most, if not all, major decisions in our life. When we think about what major to pursue, how we invest or save, where to live and work, when to have children or retire, and so much more, we are utilizing financial literacy tools to make the best possible decision for our futures.

We see the results of the lack of financial knowledge affecting millions of Americans in the news every day. Skyrocketing amounts of credit card debt, unaffordable lifestyles, poor money management, and crushing student loans have all become the norm. With a startling $1 trillion in credit card debt, research has shown that 56% of Americans have $5,000 or less in savings, and 39% don't have enough money on hand to cover a $400 emergency. Financial literacy is a tool, and without it, our physical and mental health suffers as well. Research has linked money-related stress to higher blood pressure, digestive issues, and greater chances of depression. Hence, financial literacy can not only improve your bank account but your overall health.

Expanding our financial knowledge and teaching our children about money can set them on the path for a much brighter future. The best way to address these statistics and avoid the pitfalls of financial stress is to start cultivating the right habits during early life. Financial literacy helps create the proper mindset and a foundation for good money management from the very beginning. Moreover, it can be very empowering and a lot of fun to learn!

Here is what children should know about money in every age group:

PreK - 2nd grade (ages 3-7)

It's important for children to learn about money at this young age through hands-on activities, puzzles, and games. One way to learn about numbers and money at the same time is to use play money to count, add, and subtract. In fact, money is probably one of the best ways to teach kids about math skills like adding and subtracting because it can be applied in real life and can also be tied in while playing make-believe. Activities like pretending to be a grocery store cashier, restaurateur, or treating a sick stuffed animal at the veterinarian all lay the foundation for understanding addition, subtraction, negative numbers, and other complex math topics, making them easier to understand in the future.

Activities For Kids: You can find fun worksheets (like these on the Doctor Finances website) to help children learn the basics of finances and goal setting (saving). Children can do money-based activities such as cutting out pictures of cash, credit cards, and debit cards. These pieces can then be used for general play or to start discussions about numbers, adding, and subtracting. 

Children can also begin saving real money that they earn from chores, gifts, or allowance in a piggy bank. This practice allows them to start grasping the basic concepts of the four important categories of money: spending, saving, sharing, and investing.

Spending: Money they will buy things with.

Saving: Money they will store and keep for future use.

Sharing: Money they will gift to family, friends, or donate.

Investing: Money they will grow in the stock market for a long time.

3-7 years old is when your child should begin to hear and get a fundamental understanding of some common terms such as; budgeting, debt, credit cards, debit cards, investing, and more. Believe it or not, children as young as five can understand the concept of working towards a goal (delayed gratification), such as saving up money to buy a nice toy or game.

There are also technology tools to help little ones get started. Two of my favorites are BusyKid, a chores app helping kids manage money, and Acorns, an app to begin investing small amounts ($1, $3, and $5) of money.

Activities For Parents: This is a good time for parents to look into investing in any or all of the following; 529 college fund, UTMA/UGMA accounts, or a Roth IRA. Setting up wills and estate planning is also essential when you have dependents or assets to avoid the probate process should something happen to the caretakers.

Grades 3rd - 8th (ages 8-13)

The big concept in this age group is learning to save money and understanding why it is important to "manage" it properly. As a society, we tend to have a prudish attitude towards money, but money can help give you freedom and choice, create a safety net, and enable you to help others. It is a great way to teach children altruism as well.

Activities For Kids: Children of this age group should begin to learn budgeting and how to make a plan for the things that they want. A good book for this age is How to Turn $100 to $1,000,000, which covers a myriad of topics for young learners to explore. Concepts like having the right financial mindset, budgeting templates, and short, medium, and long-term goals are all discussed in this text.

Children should have a good understanding of saving, spending, and investing by this age. It's a great time for them to think about how they can earn more money through jobs like babysitting, cutting grass, or even starting their own small business. The concepts of earning and saving should be put into practice by discussing and beginning to save money for long-term goals, such as buying a favorite electronic or new music album.

Grades 9th - 12th (ages 14-17)

If your child plans to attend college, teach them how to apply for scholarships to fund or help fund their education. Fill out FAFSA forms together and actively figure out a plan to keep student loans low. Include options like taking on a part-time job and make sure you both understand any financial aid and loan information before signing on the dotted line. As a family, you'll also want to research which type of housing will be most affordable and comfortable. This is an age where you'll want to stress the importance of you and your child reading and researching together, ensuring everything is set-up properly to keep debt as low as possible.

College (ages 18-21)

The focus here should be on your child's education, figuring out how they want to contribute to society, and minimizing any student loan debt they may have accrued.

There are many ways for your child to help offset their student loans, but some of the most common include working part-time and applying for on-campus scholarships. If you haven't already, this is a great time to introduce the concept of keeping a budget. While it is not necessary for your child to be so frugal that they can't enjoy their college experience, it is crucial for them to be aware of needs versus wants and where their money is going. 

At this age, your child can carefully build credit history using a secure credit card. However, it should only be used to build credit, and all expenses should be paid in full at the end of every month. It's essential to have a conversation emphasizing the importance of NOT accumulating any credit card debt and what the consequences of doing so would look like for them.  

Job/Graduate school (21+)

Given the gift of financial literacy, your child is likely managing some, if not all, of their own money. This is a good time for them to create an official budget for their current financial situation, using tools like YNAB or Mint to track their spending, including any money coming in and going out.

The focus at this age is ensuring all high-interest debt is paid off (if any accrued). If your child is working, have an open conversation with them about financial benefits that may be available to them, such as; employer matching of their 401(k), and other tax-advantaged accounts such as a Roth IRA, Backdoor Roth IRA, or HSA (Health Savings Account). As your child (now a young adult) continues to grow their wealth, also remember to discuss the financial basics they want to have moving forward. An emergency fund, proper term life and disability insurance, and the knowledge of how to best begin investing in broad-based low-cost index funds are all components of keeping and building wealth.

Although personal finance may seem intimidating, everything will slowly start to make sense once you learn the basics, and working towards big goals, such as achieving financial freedom, can be fun.